EU summit to consider 'reform contracts' for all euro states

Draft ideas ahead of next week's EU leaders summit foresee reform contracts for all euro states, political agreement on a full banking union and, post-2014, a budget for the eurozone.

The still-to-be finalised conclusions, seen by EUobserver, envisage progress towards profound economic and monetary union - the lack of which is considered to have led to the eurozone's current crisis - in three phases.

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By March next year, EU leaders are supposed to agree the "operational framework" for a single European banking supervisor, the first of three planks necessary for full banking union.

The proposed second phase (2013-2014) is where the EU leaders are likely to start haggling over language. It suggests that legislative proposals for a bank resolution directive and an EU-wide deposit guarantee scheme are made.

If this passes there will "in essence be political agreement on a full banking union," said one contact.

However the contact noted that there is likely to be a north-south divide in the discussions particularly on the deposit scheme as "this is money that will actually be used. It will not be lying around. People will be saying - so where are the weakest banks?'"

Another controversial part of the second phase concerns the idea that all eurozone states - regardless of whether they are breaking euro budget deficit rules or not - should be obliged to "enter into individual arrangements of a contractual nature with EU institutions" on reforms they need to make and how they need to make them.

Making all 17 euro countries enter these programmes would remove the otherwise potentially "stigmatising" nature of the programme. The idea is strongly promoted by Germany, the biggest contributor to the EU budget and the eurozone bailout funds, as it seeks more binding rules in exchange for its show of "solidarity."

The thinking in EU council president Herman Van Rompuy's cabinet is that all euro countries need to undertake reforms, no matter how fiscally prudent they are.

If the idea flies, the European Commission will be tasked with making a proposal on "such contractual arrangements" during 2013.

The draft conclusions imply that a possible change to the EU treaty would only come after European parliament elections and a new commission is installed in 2014.

In this phase - stage three - member states would aim for a "progressive pooling of economic sovereignty ... as well as reinforced solidarity between member states."

This could include a "fiscal capacity" or eurozone budget with a "degree of automatic stabilisation at the European level" meaning a limited form of automatic aid transfers for countries that suddenly find themselves in trouble.

By then more and more core decisions would need to be taken at EU level including on national budgets and "enhanced coordination of economic policies" particularly in the areas of taxation and employment.

EU leaders are due to debate these pre-cooked conclusions at a two-day summit starting Thursday next week. The conclusions will be accompanied by a short paper presented by Van Rompuy on a "roadmap" to the economic and monetary union (EMU).

The EU commission recently published its contribution to the forthcoming Van Rompuy paper in which it outlined similar ideas.

Irish EU ambassador Rory Montgomery Friday (30 November) noted that when the commission paper was presented to EU ambassadors last week there was "a lot of discussion around the table" on both the contracts idea and the fiscal capacity.

EU leaders will discuss at their summit next week the commission's proposals, which include a European Monetary Fund and an EU finance minister - but no eurozone budget, as proposed by French president Emmanuel Macron.